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Canceling a credit card and your credit score

Weigh all factors before you cancel a card account

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To Her Credit 
Sally Herigstad is a certified public accountant and the author of "Help! I Can't Pay My Bills: Surviving a Financial Crisis" (St. Martin's Press, 2006).

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Question for the CreditCards.com expert

Dear To Her Credit,
I know that canceling credit cards can adversely affect your credit score. But suppose you opt out of a card that is increasing its rates? I never use this card, it is very old (which I know acts in my favor for my credit score), but I want to get rid of it to simplify my life. Since they are raising the rates, I thought about opting out, but I don't want to if it is going to lower my credit score.
-- Sara

Question for the CreditCards.com expert

Dear Sara,
If you never use the card, the interest rate won't make much difference to you unless you want to make a statement by closing the account. Nevertheless, there are good reasons for closing an account  you don't use, including simplifying your life.

The biggest reason to close an unused account is risk. Your card or card numbers can be stolen and used without your knowledge. Unused cards can be in more danger of misuse than cards you use every day because you're not paying attention to them. I had a card I hadn't used in years, and someone made an online purchase with it. I got it straightened out with only a few hours on hold with the merchant and the credit card company, but I could have saved a lot of grief by closing the account long before.

Experts often advise against closing accounts, especially older ones, because of the potential effect on your credit score. Before you decide one way or the other, however, consider:


•  How will closing this account affect your total available credit as compared to the balances you carry on your cards? Remember, even if you pay your balances off every month, the average amount you have on your card during the month is considered an amount you owe. If you use most of your available credit, even for a short time, it doesn't look good.
•  If you close one account, you might be able to compensate for the loss of that available credit by requesting a higher limit on one of your other cards. That way, you end up with the same ratio of debt to available credit with fewer cards.
•  How many cards do you have? If you have several cards, closing one won't make much difference. If you have too many cards (more than half a dozen), it might even help.
•  How important are a few points one way or another to you right now? If you're not planning to apply for a loan or other credit in the near future, a small difference in your score probably won't matter. If your credit is very good, closing this account probably won't determine whether you qualify for a loan or what rate you get. If your credit is marginal and you plan to refinance your house soon, for example, you might want to put off closing the account.
•  Does anyone else have access to this card? The danger with a card two or more people use is not just that the other person, such as an ex-spouse, may suddenly decide to charge something. It's especially easy to lose track of charges on a card when both of you assume the other person must have bought something.
•  Remember, closing an account doesn't make it go away. If you have a long history of on-time payments on this card and you close the account, your good history is still on your report.

Now that we can track our scores every day, it's tempting to focus too much on them. In reality, a few points here and there are nothing to worry about. I'd rather people worry more about their overall financial health and safety than every little tick in their credit scores. Sometimes to gain long-term financial benefits, you may have to put up with a few points temporarily lost. That's a fair trade. After all, the stronger your financial position, the better your credit score will be in the long run.

See related: How to cancel a credit card the right way, Understanding how credit scores work

Sally Herigstad writes about women and credit every week for CreditCards.com. Herigstad is a writer and finance consultant for MSN Money, a personal finance software product. She is also a member of the Washington Society of Certified Public Accountants and the American Institute of Certified Public Accountants. Her website is http://helpicantpaymy bills.net. Sally Herigstad lives in Kent, Wash., with her husband Gary. They have two grown children, Valia and Grant.

To Her Credit answers a question about a debt or credit issue from a CreditCards.com reader each week.
Send your question to Sally.

Updated: August 18, 2009


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